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Sebi for overhaul of board governance at listed firms

Regulator Sebi is in favour of a major overhaul of the way boards of listed firms discharge their duties, including for appointment and removal of directors, and also wants their audit committee to be empowered to identify future risks.

There is also a need for "greater tolerance" and enhanced transparency in discussions and decisions taken at the board level and by various board committees of listed companies, but the regulator would prefer them to adopt best global practices in this regard voluntarily rather than being dictated to do so with a new set of stringent rules, a top official said.

While a 'guidance note' was issued last month by the Securities and Exchange Board of India (Sebi) on board evaluation at listed companies, there is a view that the regulator should come out with a new set of regulations to ensure greater compliance.

The regulator may soon come out with a further detailed guidance note while it is also mulling launching a public consultation process to understand whether there is a need for a new set of rules and what those could be, a top official said.

The move assumes significance in the wake of recent boardroom battle at the Tata group and the controversy surrounding the reported differences between some promoters and the top management at Infosys -- both of which played out in a big way in full public glare and forced Sebi and the government to keep a close watch to ensure safeguarding interest of minority investors and other stakeholders -- as also the message going to the foreign investors.

"The prominent view within Sebi as of now is that the concept of board evaluation is very nascent in India and forcing the companies to follow a new set of rules in this regard may not be warranted at this stage," a top official said, while adding that the decision can be reviewed in some time after taking into account response of the companies to the guidance note.

Also, since the regulator itself will go through a leadership change soon, with senior IAS officer Ajay Tyagi set to take charge as the next Sebi Chief on March 1, a final decision on whether to replace the guidance note with a new set of rules could be taken under the new dispensation.

Corporate governance has been a key focus area, with a huge emphasis on safeguarding the interest of minority shareholders in listed companies, during the six-year tenure of current Sebi Chairman U K Sinha.

The proposed moves will also take into account the suggestions made in this regard by the regulator's International Advisory Board (IAB), which was also set up during Sinha's tenure at Sebi to advise it on best global regulatory practices and evolution of various policies. In its last submission to Sebi, the IAB observed that the Indian companies as also the policymakers need to realise that good corporate governance is about helping the company achieve its objectives, implement its corporate strategy, while keeping the interest of various stakeholders in mind.

The IAB suggested that a matrix of expertise may be introduced to make the board diverse, balanced and in tune with the requirements for effective functioning of the company.

It has also called for "full transparency" in board appointments and removal process, with similar requirements being in place for both stages, while it wants audit committee to also focus on forward-looking risk assessment, in addition to retrospective evaluation.

After looking at global practices, the IAB noted that the board evaluation is a very important element in corporate governance and it should go beyond "a box-ticking exercise".

"The process has to be conducive to the growth of the company and can differ from company to company.

"The best evaluation is actually an exercise in self evaluation of the company's own performance and effectiveness in terms of its mission, financial returns, strategy, business model and social responsibility, and in this context, whether the standards expected from the board are being realised," the IAB felt.

The advisory panel, which includes experts from various fields, said it would be a good practice if the result of the evaluation of the board as a whole is disclosed to the shareholders.
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